For most of the year, Congress held up any decision on whether to extend key tax breaks and credits on everything from sales tax deductions for individual purchases in non-income tax states like Tennessee to bonus depreciation credits for businesses making capital investments.
But with only a couple of weeks left in 2014, Congress did approve more than $42 billion of special tax breaks under a tax extender package that ensures that many businesses and individuals won't face extra tax burdens as the year ends on Wednesday.
The tax extenders don't carry past Wednesday. But the retroactive extension for 2014 means money back for those who made purchases already this year. And in some cases it's spurring last-minute year-end spending in anticipation of the expiration of the one-year extension.
In all, more than 50 special interest tax breaks and credits were extended through 2014 after they were originally scheduled to expire at the end of 2013.
But Congress has made such temporary extensions many times before -- and is likely to extend at least some of the tax breaks into 2015. But not before Congress acts again, probably late next year.
"I don't know that any of my clients just assumed early this year that these tax extenders were a given, and therefore I don't know that it ended up being the incentive that they were meant to be," said Dennis Blanton, managing partner of the Chattanooga office of LBMC. "But for many businesses, these extensions will have an important impact in the taxes they pay."
Blanton said the biggest impact on local business clients comes from the 50 percent business bonus depreciation and section 179 depreciation allowance.
With 50 percent bonus depreciation, a company can deduct half the cost of new capital purchases in the first year.
Under Sec. 179, small business owners can deduct the entire cost of up to $500,000 of new or used computer equipment, heavy vehicles, furniture--most depreciable assets that have less than a 20-year life.
Nearly half of the estimated cost of the extenders comes from the three largest incentives: a $7.6 billion credit for business research and development costs; a $6.4 billion tax break for renewable energy production plants; and a $5.1 billion tax exception that allows financial firms and other businesses to defer U.S. taxes on certain foreign profits.
For individual Tennesseans that itemize their tax returns, the extension of the sales tax exemption also will help cut their individual tax bills.
Tennessee is one of eight states that don't have an income tax and, therefore, taxpayers can't claim a state income tax deduction on their federal returns. To compensate for states without an income tax , Congress granted temporary provisions for individuals to deduct what they pay in sales taxes each year -- either through a standard allowance or through receipts of all taxable purchases.